We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Cisco Systems, Inc. (NASDAQ:CSCO) and determine whether hedge funds skillfully traded this stock.
Cisco Systems, Inc. (NASDAQ:CSCO) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Cisco Systems, Inc. (NASDAQ:CSCO) was in 59 hedge funds' portfolios at the end of June. The all time high for this statistics is 68. Our calculations also showed that CSCO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to take a gander at the fresh hedge fund action surrounding Cisco Systems, Inc. (NASDAQ:CSCO).
How are hedge funds trading Cisco Systems, Inc. (NASDAQ:CSCO)?
Heading into the third quarter of 2020, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. By comparison, 55 hedge funds held shares or bullish call options in CSCO a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Cisco Systems, Inc. (NASDAQ:CSCO), with a stake worth $953.4 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $357.7 million. AQR Capital Management, Adage Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to Cisco Systems, Inc. (NASDAQ:CSCO), around 8.9% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, setting aside 3.02 percent of its 13F equity portfolio to CSCO.
As industrywide interest jumped, some big names were breaking ground themselves. Renaissance Technologies, established the largest position in Cisco Systems, Inc. (NASDAQ:CSCO). Renaissance Technologies had $52.7 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also made a $30.2 million investment in the stock during the quarter. The following funds were also among the new CSCO investors: Andrew Sandler's Sandler Capital Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks similar to Cisco Systems, Inc. (NASDAQ:CSCO). These stocks are Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), and Toyota Motor Corporation (NYSE:TM). All of these stocks' market caps are similar to CSCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRK,76,4854278,-2 KO,59,20093024,4 XOM,53,1114752,-12 PEP,53,3156792,-4 PFE,66,2139163,-1 CMCSA,80,7207135,-3 TM,13,719379,2 Average,57.1,5612075,-2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.1 hedge funds with bullish positions and the average amount invested in these stocks was $5612 million. That figure was $2905 million in CSCO's case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSCO is 66.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately CSCO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CSCO were disappointed as the stock returned -8.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.